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Monday, July 31, 2017

Building Your Financial Safety Net From Nothing

We could all do with a financial safety net at some point in our lives. Whether it’s because you’re suffering from the aftermath of mismanaged finances or because you fear what could happen if you fall into debt, it’s understandable that you want to take better control over your money.

A good place to start would be the ever-important financial safety net. However, you can’t just build a safety net out of nothing. If thin air were a good safety net then the world would be a different place, but sadly that’s not the case. A financial safety net needs to be built on money and good habits, which can be two very hard things to hold on to if you’re new to budgeting or financial concerns. So to help you begin your journey to weave your financial safety net, we’ve written this guide that will get you back on your feet and far from the clutches of debt.

What is a financial safety net?

First, let’s clear up any questions that you may have about financial safety nets. The first major question we should answer is: what is a financial safety net?

A financial safety net, as mentioned, is built on money and good habits. Many people incorrectly assume things about the financial safety net and, as a result, they work on the wrong things.

A financial safety net is NOT about a single savings account

A financial safety net is NOT about a single insurance policy

A financial safety net is NOT about having others to fall back on

With this in mind, let’s go through some of the things that create a financial safety net and define the term.

For starters, having a single savings account isn’t the best method for financial security and having multiple savings accounts isn’t much better. A savings account is, in some ways, like an investment. You’re essentially putting money into an account, watching it steadily grow and giving yourself peace of mind that you have money available for dire situations. However, it’s all too easy to withdraw and spend this money accidentally.

Insurance policies are a major part of financial safety nets, but it’s important to remember that you can’t just have a single policy for everything. It takes a lot of time and research to find the right insurance policies for your needs, which is why it’s a good idea to not only take out multiple insurance plans but to fine-tune them to your specific needs.

Lastly, financial safety nets aren’t other people. You can’t rely on friends and family members to help dig you out of a financial pit. Not only is it embarrassing, but you can’t rely on something that isn’t guaranteed. A guaranteed net is something like savings accounts or assets to fall back on, not a family member that might also be in a dire financial situation.

Building the net from nothing

Now let’s talk about ways to build a financial safety net from almost nothing.

1. Start an emergency fund, not a savings account - This will help you build up some funds that you can use for pretty much anything. It’s best to have this in cash form because it’s all too easy to accidentally spend money from a bank account and it’s much more convenient than having to go to a bank to store it every week. Use budgeting to help you save money and try your best to secure a large emergency fund to build the foundation of your safety net.

2. Look for cheaper insurance quotes to help you pay less - This is a fantastic way to save money on all-important insurance plans. Make sure you look around for a quote for auto insurance, home insurance and life insurance if needed. Remember that you can fine-tune your insurance plans depending on your needs. This will help you save money in the long-term and can give you more peace of mind knowing that you have more control over what you’re putting money into.

3. Learn to invest in assets, not a savings account - As mentioned before, savings are a form of investment which is why it’s better to learn how to actually invest money into something as opposed to just sticking it into a savings account. Not only do assets grow in value more rapidly, it’s also harder to accidentally spend that money because it’s not in cash form.

Summary

As you can see, building a financial safety net is more about your knowledge than your funds. You can’t just slap a large amount of money into a savings account and call it a day—it’s much more complicated than that. Study how to save your money, what to invest in and shop around for better insurance quotes to give yourself a financial safety net that is sturdy so you can bounce back from debt.